COURT OF APPEAL FOR ONTARIO

CITATION: Hybridyne Power Generation Corp. v. SAS Company Global Investments Inc., 2015 ONCA 496

DATE: 20150706

DOCKET: C60536

Laskin, Pardu and Brown JJ.A.

BETWEEN

Hybridyne Power Generation Corp.

Plaintiff (Respondent)

and

SAS Company Global Investments Inc.

Defendant (Appellant)

Romesh Hettiarachchi, for the appellant

Gregory Roberts, for the respondent

Heard: June 25, 2015

On appeal from the judgment of Justice Laura A. Bird of the Superior Court of Justice, dated May 15, 2015, with reasons reported at 2015 ONSC 3153.

Brown J.A.:

I. Overview

[1] The appellant, SAS Company Global Investments Inc. (“SAS”), appeals from the judgment of Bird J. dated May 15, 2015 (the “Judgment”), granting summary judgment in favour of the respondent, Hybridyne Power Generation Corp. (“Hybridyne”). The dispute between the parties concerns their interests in a proposed solar power generating facility in Clarington, Ontario (the “Project”). Because of the imminent expiration of regulatory approvals for the Project, the appeal was expedited. At the hearing, the appeal was dismissed, with reasons to follow. These are those reasons.

II. Background facts

[2] On October 27, 2010, the parties entered into a Master Agreement and three related agreements for the development of the Project: a Share Purchase Agreement, a Fixed Price Services Agreement, and a Buy/Sell Agreement.

[3] The Project is owned by Hybridyne Power Generation Site A Inc. (“Site A”), at the time a wholly-owned subsidiary of Hybridyne. Under the Share Purchase Agreement, SAS acquired 75% of the issued and outstanding shares in the capital of Site A, and the agreement entitled it to buy a further 22.5% of the shares at a later date.

[4] Under the Fixed Price Services Agreement (“FPSA”), SAS retained Hybridyne to perform all services necessary to enable Site A to obtain a Notice to Proceed (“NTP”) for the Project under its Feed-In Tariff Contract (“FIT Contract”) with the Ontario Power Authority. The FPSA specified the amounts and the timing of payments by SAS for the development services performed by Hybridyne. There is no dispute that Hybridyne performed all of the services necessary to obtain the NTP, which was issued on December 6, 2012.

[5] After securing the NTP, Hybridyne took the position that SAS had failed to make all of the required payments under the FPSA. Section 8 of the FPSA provided that in the event SAS failed to pay any amount due under the agreement and failed to cure its default within 30 days of receipt of notice from Hybridyne, the latter could terminate the FPSA provided that Hybridyne had never defaulted on any of its own obligations under the FPSA and related agreements.

[6] On January 15, 2013, Hybridyne gave SAS notice that it had defaulted on the final payment due under the FPSA. The notice stated that if SAS did not cure the breach within 30 days, Hybridyne would initiate the process to take back ownership of the Project in accordance with the terms of the agreements between the parties.

[7] Subsequent negotiations between the parties failed to resolve the dispute. On June 18, 2013, Hybridyne gave SAS notice that it was terminating its relationship with SAS pursuant to FPSA s. 8 and that Hybridyne would purchase the shares of Site A held by SAS (the “Shares”) in accordance with the terms of the FPSA.

[8] Section 9 of the FPSA provided that upon termination of the agreement as a result of an event of default, SAS would be relieved of the obligation to pay any amounts it owed under the FPSA and Hybridyne was to pay a termination fee to SAS equal to half of the funds that SAS had advanced. At its option, Hybridyne could repay the termination fee in three equal annual instalments. As well, section 9(c) of the FPSA stated:

The shares of [Site A] owned by [SAS] shall be sold as contemplated by Article 7 of the Buy/Sell Agreement dated October 7, 2010 made between the parties upon payment in full of the termination fee described in Section 8(b).

[9] Article 7 of the Buy/Sell Agreement states that upon the occurrence of an event of default, SAS shall sell to Hybridyne all of the Shares for $1.00 per Share “provided Hybridyne has paid in full all amounts due to [SAS] as a result of the termination of the Fixed Price Services Agreement as required therein.”

[10] In September, 2013, Hybridyne commenced this action seeking a declaration confirming its termination of the FPSA, a declaration of the amount of the termination fee it owed to SAS, and a declaration that all of the Shares “belong to or vest in the name of the plaintiff upon the payment” of the termination fee. In defending the action, SAS pleaded that it had made all payments to Hybridyne required by the FPSA and it denied that Hybridyne was entitled to purchase the Shares.

[11] In April, 2014, Hybridyne brought a motion for summary judgment seeking the relief pleaded in its statement of claim. Although originally returnable in May 2014, Hybridyne’s motion was adjourned several times because SAS changed lawyers who, in turn, sought adjournments. After a year’s worth of adjournments, the motion finally was heard by the motion judge on May 15, 2015.

III. Motion for Fresh Evidence

[12] SAS moves for leave to file fresh evidence on this appeal; Hybridyne opposes the motion. SAS seeks leave to introduce evidence on the following three points:

(i) the lawyer who acted for SAS on the summary judgment motion failed to make relevant inquiries of the directors and officers of SAS before the hearing of the motion;

(ii) the evidence of Mr. Thomas Cleland, the principal of Hybridyne, filed on the motion to expedite the appeal demonstrates that Hybridyne was not in a position to pay any monies to SAS for the Shares; and,

(iii) SAS has invested significant sums into the Project that would be lost in the event its appeal was dismissed.

[13] SAS has not satisfied the requirements to adduce fresh evidence on the appeal: R. v. Palmer, 1979 CanLII 8 (SCC), [1980] 1 S.C.R. 759. The proffered evidence about the former counsel for SAS would not be conclusive of any issue on the appeal. Although the counsel for SAS who appeared on the summary judgment motion had filed a motion to be removed as lawyer of record, the transcript of the motion hearing disclosed that counsel met with his client the day before the hearing and, in fulfillment of his duties as counsel of record, filed a factum and book of authorities, and made oral submissions on the motion. Although SAS alleged that its former counsel had failed to provide effective representation because he did not make relevant inquiries of the officers and directors of the company, SAS offered no particulars to support this bald allegation.

[14] As to the evidence of Mr. Cleland that Hybridyne lacked the funds to acquire the Shares, that evidence is not relevant to the issues SAS raised on this appeal. The FPSA does not require Hybridyne to use its own corporate funds to purchase the Shares, and Mr. Cleland’s evidence disclosed that Hybridyne intends to rely on third-party financing to acquire the Shares.

[15] Finally, the evidence about investments made by SAS into the project concerned the drawdown by Hydro One Networks Inc. in April, 2013 of a standby letter of credit SAS had posted. That evidence could have been obtained by the exercise of reasonable diligence prior to the summary judgment motion, and SAS provided no explanation about why it had failed to adduce that evidence in its response to the motion.

[16] For those reasons, I would dismiss the motion by SAS for leave to file fresh evidence.

IV. Issues on appeal

[17] SAS advances the following main arguments on appeal:

(i) FPSA s. 8 provides that Hybridyne can only exercise its right to terminate the agreement if it is not in default of its own obligations under the FPSA and related agreements. The motion judge failed to consider the allegations made by SAS in its pleading that Hybridyne was in default of its obligations at the time it gave notice terminating the FPSA and therefore was not entitled to terminate the agreement;

(ii) The motion judge erred in finding that SAS must transfer the Shares to Hybridyne upon payment of the termination fee, without taking into account the need to finalize the precise amount of the termination fee and the obligation of Hybridyne under the Buy/Sell Agreement to pay SAS the Share purchase price; and,

(iii) The motion judge erred in concluding that Hybridyne was entitled to the Shares notwithstanding its pleading that SAS had repudiated the FPSA.

SAS acknowledges that these arguments were not raised before the motion judge.

V. Standard of review

[18] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada held that absent an error of law, the exercise of powers by a motion judge under Rule 20 of the Rules of Civil Procedure attracts deference. Whether a genuine issue requiring a trial exists is a question of mixed fact and law. Where there is no extricable error in principle, findings of mixed fact and law should not be overturned, absent palpable and overriding error.

[19] The interpretation of a contract involves an issue of mixed fact and law on which an appellate court should defer to the motion judge, except in cases of a palpable and overriding error or where it is possible to identify an extricable error of law: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 50-55.

VI. Analysis

A. The issues argued before the motion judge

[20] At para. 11 of her reasons, the motion judge clearly described the issue the parties were asking her to decide on the summary judgment motion:

The parties agreed that the precise dollar amounts are not important and should not be resolved by me on this motion. The issue is whether I am satisfied that there has been a breach of the contract. In other words, did the defendant pay the full amount owing under the FPSA, or some lesser amount. A payment of anything other than the full amount owing would put the defendant in breach of the contract, thereby triggering the plaintiff’s right to terminate the agreement in accordance with the terms set out in paragraph nine of the FPSA.

[21] On the motion, SAS filed an expert affidavit from Mr. Tom Strezos addressing whether SAS had paid all amounts it owed under the FPSA. At para. 13 of her reasons the motion judge stated:

The plaintiff claims that several amounts in Mr. Strezos’ chart were not paid, as alleged by the defendant pursuant to the FPSA. Mr. Strezos acknowledged under cross-examination that his opinion that the defendant had fulfilled his financial obligations was dependent on all of the amounts in the “Difference” column having been paid. If the defendant did not pay any one of those amounts, it did not comply with the terms of the FPSA.

[22] The motion judge found that SAS had not paid all amounts shown in the “Difference” column, specifically a personal cheque in the amount of $50,000 allegedly paid on January 8, 2008, as well as HST on a $150,000 deposit. The motion judge also found that a January 4, 2013 payment in the amount of $50,000 was not a payment made by SAS for services Hybridyne had provided under the FPSA. Based on those findings of fact, the motion judge concluded that SAS had breached the terms of the FPSA and Hybridyne was entitled to terminate the agreement in accordance with s. 8 of the FPSA.

[23] On this appeal, SAS does not challenge those findings of fact by the motion judge. As a result, there is no reason to interfere with her finding that SAS failed to pay Hybridyne the amounts it was obligated to pay under the FPSA and therefore was in breach of the FPSA.

B. The new issues raised by SAS on appeal

[24] SAS raises three issues which it did not argue before the motion judge. In Kaiman v. Graham, 2009 ONCA 77, 245 O.A.C. 130, this court stated, at para. 18, that:

The general rule is that appellate courts will not entertain entirely new issues on appeal… The burden is on the appellant to persuade the appellate court that “all the facts necessary to address the point are before the court as fully as if the issue had been raised at trial”… In the end, however, the decision of whether to grant leave to allow a new argument is a discretionary decision to be guided by the balancing of the interests of justice as they affect all parties…

[25] The new issues raised by SAS on this appeal essentially involve either the interpretation of the Master Agreement, FPSA, and Buy/Sell Agreement, or the state of the evidentiary record on the motion in respect of the SAS counterclaim. Accordingly, all the facts necessary to address the new issues are before the court.

First new issue: Hybridyne did not establish its claim as pleaded

[26] SAS submits that the motion judge erred in granting summary judgment because Hybridyne failed to prove its claim as pleaded. SAS argues that in its statement of claim Hybridyne had framed its action as one based on its acceptance of SAS’ repudiation of the FPSA, not as one in which it sought to enforce its termination rights and remedies under FPSA ss. 8 and 9.

[27] I do not accept this argument. A pleading must be read as a whole. In paras. 15 through 17 of its Amended Statement of Claim, Hybridyne specifically pleaded its rights under FPSA ss. 8 and 9, including its right to purchase the Shares in the event of a default by SAS. Hybridyne’s right to purchase the Shares obviously survived the termination of the FPSA. By its terms, the FPSA made that remedy available to Hybridyne in the event the agreement terminated by reason of SAS’ default.

Second new issue: The motion judge ignored Hybridyne’s obligation to pay the Share purchase price and the need to finalize the amount of the termination fee

[28] SAS submits that the motion judge erred by ignoring the effect of s. 7.5 of the Buy/Sell Agreement which provides that if Hybridyne is entitled to purchase the Shares because of an event of default by SAS under the FPSA, the closing of the Share purchase transaction shall take place “30 days after the date of the Event of Default is deemed to have occurred.” SAS contends that because Hybridyne took the position that an event of default had occurred on January 14, 2013, Hybridyne was obliged under the Buy/Sell Agreement to purchase the Shares within 30 days. Since it did not, SAS argues that Hybridyne was not entitled under the agreements to purchase the Shares thereafter.

[29] I do not accept this argument. When Hybridyne gave notice terminating the FPSA on the basis that SAS had failed to pay all amounts owing, SAS took the position that it had made all required payments, so therefore Hybridyne was not entitled to terminate the agreement or acquire the Shares. As a result of SAS’ position, Hybridyne was not able to proceed with the Share purchase until the disposition of this lawsuit. SAS cannot rely on the delay caused by the legal position it took to deprive Hybridyne of its right to purchase the Shares.

[30] In light of this conclusion, no practical consequence flows from the apparent conflict between the 30-day closing language contained in section 7.5 of the Buy/Sell Agreement and FPSA s. 9(b) which affords Hybridyne the option to repay the termination fee over three years. As stated, SAS cannot rely on its own delay to defeat Hybridyne’s right to purchase the Shares, and Hybridyne sought and obtained a Judgment that allows it to pay the termination fee into court in one lump-sum. As a related argument, SAS submits that it was not open to the motion judge to direct a reference to determine the amount Hybridyne must pay as the termination fee under FPSA s. 9(b), but then order SAS to deliver up the Shares simply upon Hybridyne’s payment of $600,000 into court, before the reference had been conducted. SAS makes two points: first, until the precise amount of the termination payment is known and paid, Hybridyne is not entitled to purchase the Shares under FPSA s. 9(c); and, second, the motion judge ignored Hybridyne’s obligation under the Buy/Sell Agreement to pay SAS a Share purchase price in order to acquire the Shares.

[31] I do not accept these arguments. As was clear from the transcript of the motion hearing, the matter was an urgent one, requiring a timely adjudication of the parties’ dispute in order to preserve the viability of the Project given the regulatory deadlines it faces. During the submissions on the motion, Hybridyne’s counsel informed the motion judge that he had discussed with opposing counsel referring the determination of the precise amount of the termination fee to a master, and requiring Hybridyne to pay into court an amount which likely would cover Hybridyne’s net obligation in respect of the termination fee. This amount was estimated by taking $772,000 (the amount of the termination fee calculated by Hybridyne’s expert), and subtracting $100,000 for the judgment obtained by Sustainable Power Capital Inc. against Site A, as well as the costs due from SAS to Hybridyne on the motion, which the motion judge fixed at $68,617.45.

[32] The motion judge’s resulting order that Hybridyne pay into court $600,000 before SAS was required to sell the Shares was a reasonable exercise of her remedial discretion under rule 20 of the Rules of Civil Procedure because it was consistent with the Share purchase terms contained in the FPSA and Share Purchase Agreement and afforded SAS adequate security for the payment of the termination fee due to it. There is no reviewable error in the remedy granted by the motion judge.

[33] In order to acquire the Shares, Hybridyne must pay not only the termination fee, but also the purchase price of $1.00 per Share stipulated in Article 7 of the Buy/Sell Agreement. Although the motion judge did not address that issue – no doubt because it was not in dispute – Hybridyne expressly acknowledges, in para. 52 of its factum, that it is required to pay that purchase price to SAS on the closing of the Share purchase.

Third new issue: Hybridyne had defaulted on its obligations under the FPSA

[34] SAS further argues that when Hybridyne purported to terminate the FPSA, Hybridyne had not met the condition in FPSA s. 8(b) that it “is not then and has not been in default of any of its obligations hereunder, under the Master Agreement or under any other agreement referred to in the Master Agreement.” In para. 18 of its statement of defence, SAS pleaded that Hybridyne had breached the FPSA, Master Agreement, and Share Purchase Agreement by (i) failing to perform services that would enable Site A to construct and operate the Project in a cost-effective manner, (ii) failing to perform services in a proper and workmanlike manner, and (iii) withholding from SAS facts material to Site A. SAS did not provide any particulars of those allegations in its statement of defence.

[35] However, in its counter-claim SAS offered some details, alleging that Hybridyne had breached its obligations because (i) it had caused Site A to enter into an excessively costly grid connection agreement, (ii) it had failed to obtain an appropriate solar inverter for the Project which prevented SAS from securing financing for the project, and, (iii) it had made unspecified misrepresentations to SAS contrary to the requirements of the Share Purchase Agreement. SAS argued that because the motion judge had failed to deal with these allegations contained in its counter-claim, she was not in a position to find that Hybridyne had satisfied the conditions of FPSA s. 8(b) entitling it to terminate the agreement.

[36] On the motion for summary judgment, it was clear Hybridyne was taking the position that it was entitled to terminate the FPSA under s. 8 of that agreement. Consequently, in order for SAS to demonstrate that a genuine issue requiring a trial existed on that claim, SAS was obliged to adduce evidence addressing its allegations that Hybridyne had breached its obligations under the agreements and, therefore, was not entitled to terminate under FPSA s. 8. SAS was not entitled to rely simply on the allegations in its pleading.

[37] SAS failed to adduce such evidence. It filed evidence from only one fact witness, its Chief Operating Officer, Michael McKie. In his affidavit, McKie made no reference to the first allegation that Hybridyne had caused Site A to enter into an excessively costly grid connection agreement.

[38] As to the second allegation, while McKie did adduce some evidence touching on the solar inverter, he did not depose that any obligation Hybridyne may have had regarding a solar inverter arose under “the Master Agreement or under any other agreement referred to in the Master Agreement,” a requirement of FPSA s. 8(b). Indeed, none of the Master Agreement, FPSA, Share Purchase Agreement or Buy/Sell Agreement make any reference to an obligation by Hybridyne regarding a solar inverter, with the result that McKie’s evidence about the solar inverter was irrelevant to the issue of whether Hybridyne was entitled to exercise its termination rights.

[39] Finally, in his affidavit McKie suggested that Hybridyne failed to comply with a change of control provision in the FIT Contract with the Ontario Power Authority, thereby breaching a representation in the Share Purchase Agreement that the FIT Contract for the Project was in good standing. McKie failed to file the evidence necessary to support this allegation. He did not file the executed FIT Contract entered into for the Project, so it is not possible to assess who made what representation to the Ontario Power Authority. Moreover, there is an air of commercial unreality to this allegation. It flies in the face of the position advanced by SAS at the hearing of the appeal that it wanted to control the future construction of the Project and, to that end, was prepared to pay into court the financial arrears it owed under the FPSA. Commercial common sense would suggest that SAS is prepared to make such a payment because the FIT Contract remains in good standing and the Project continues to have value.

C. Conclusion on the granting of summary judgment

[40] In sum, I see no error in the motion judge’s conclusions that SAS had breached the FPSA and Hybridyne was entitled to purchase the Shares in accordance with the mechanism set out in the Judgment. Accordingly, I would dismiss the appeal.

VII. Request for a stay of execution of the Judgment

[41] SAS submits that this court should stay the Judgment pending the determination of its counter-claim. SAS did not ask the motion judge to grant a stay of execution pursuant to rule 20.08 of the Rules of Civil Procedure. Nor is there any just reason to grant a stay at this stage of the proceeding. As observed, SAS did not adduce evidence to substantiate the allegations made in its counter-claim. Further, the pending expiry of the Project’s Renewable Energy Approval in late November, 2015 means that granting a stay probably would jeopardize the viability of the Project to the detriment of both parties. Finally, SAS proposes, as a condition of the stay, that it pay into court the amount of the final payment which it failed to make in late 2012, in return for Hybridyne releasing its interest in the Shares. Imposing such a condition would be most unjust: it would completely defeat Hybridyne’s claim and would re-write the bargain between the parties contained in s. 9 of the FPSA.

VIII. Disposition

[42] By way of summary, I would dismiss the motion by SAS for leave to file fresh evidence, dismiss its appeal, and dismiss the request of SAS for a stay of execution of the Judgment pending determination of its counter-claim. I would award Hybridyne its costs of the appeal and the motions heard on June 20, 2015, fixed in the amount of $40,000, inclusive of disbursements and HST, and would consequently vary para. 3 of the Judgment to read that Hybridyne pay into court the sum of $560,000.

Released: July 6, 2015 (J.L.)

“David Brown J.A.”

“I agree John Laskin J.A.”

“I agree G. Pardu J.A.”